Ethics and governance in the European Financial centers

According to the official communication from the Gibraltar Financial Services Commission (www.fsc.gi), Gibraltar is at the forefront of anti-money laundering practices :
- it was one of the first jurisdictions worldwide to criminalise money laundering from all types of criminal activity not just drugs related offences. This was also recently extended to cover the financing of terrorism.
- it was the first jurisdiction to regulate the providers of fiduciary services (company management and formation as well as professional trustees) and to apply the provisions of the Anti-Money Laundering regime to this sector.

Gibraltar has transposed and given effect to the EU’s 1st and 2nd Money Laundering Directives and is already largely compliant with the provisions of the proposed 3rd Directive. Gibraltar is also largely compliant with the recently revised 40+9 special recommendations of the Financial Action Task Force (FATF/GAFI) and is actively working to update those few areas where international standards have recently changed all the more as money launderers get more sophisticated, which requires the evolution of regulatory and supervisory practices.

In relation to other jurisdictions both onshore and offshore, Gibraltar’s company management industry with only 30,000 active companies does not make it a large player worldwide. The risks posed by the sector itself is mitigated by the fact that the firms providing these services are vetted and regulated by the Gibraltar Financial Services Commission. The firms providing these services are themselves required to apply the same standards as any financial institution in relation to the fight against money laundering and the combating of terrorism.

Tax evasion is considered as a criminal offence as the person committing such an offence will also be committing a number of other offences as well, all of which are defined as criminal offences under the Laws of Gibraltar. There is no differentiation drawn between tax evasion and other criminal activity in the legislation.

Gibraltar is geographically exposed to launderers from two main sources :
- the first of these is the existence of a major drug producing region (Morocco) and
- a large consumer and distribution network in Spain not only for drugs emanating from Morocco but also cocaine and designer drugs imported into Europe. Add this risk to the recent establishment of organised criminal activities from Eastern Europe into southern Spain and there is a huge potential for launderers to use Gibraltar as a base for money laundering.
These risks are mitigated by the small coastline and effective policing of the area preventing Gibraltar being used as a transhipment area for drugs or people smuggling. Secondly many of the Eastern Europeans settling in Southern Spain remain outside of the EU and therefore cannot travel physically into Gibraltar due to visa requirements. Meticulous border controls between Gibraltar and Spain also acts as a deterrent to potential launders wishing to use Gibraltar for placement stages of their activities.

The strongest defence mechanism for preventing layering stages, which is where Gibraltar is most vulnerable, is the regulation of every financial intermediary that operates in or from within Gibraltar with strong KYC requirements and linked to an effective enforcement agency network.

Evaluations have been effected by the FATF under the aegis of the Offshore Group of Banking Supervisors who found that Gibraltar’s standards were "close to complete adherence with the FATF 40 Recommendations." FATF itself found that Gibraltar was a co-operative jurisdiction in the fight against money laundering and found "Gibraltar has in place a robust arsenal of legislation, regulations and administrative practices to counter money laundering." The findings were further reinforced by a subsequent evaluation by the International Monetary Fund (IMF) and a independent review of the activities of the Financial Services Commission which concluded that "supervision is generally effective and thorough and Gibraltar ranks as a well-developed supervisor." The IMF is due to report again on Gibraltar in 2006.

The latest supervisory review of the Financial Services Commission was conducted to establish whether the Financial Services Commission matches UK regulatory practice. In relation to anti-money laundering practices the report praises the Gibraltar regime as "more robust than that of the UK in a number of areas" and says that regulations have been "developed to a good standard and staffed by competent regulators with a manifest determination to improve performance further." The review notes that Gibraltar's decision to regulate professional trustees and company management means that "enforcement of these requirements in Gibraltar now exceeds that in the UK, even taking account of the different risks posed by the business," It adds that the Financial Services Commission imposed a review of the identification evidence held on all existing customers by Gibraltar financial institutions, and commented that "this requirement goes beyond the position in the UK. The FFinancial Services Commission is to be particularly commended for this."
Gibraltar participates in the Egmont Group of Financial Intelligence Units via the independently run Gibraltar Financial Intelligence Unit (GFIU) which is manned by officers of the Royal Gibraltar Police and Customs Department of the Government of Gibraltar.


Summary of the anti-money laundering provisions

Scope

All financial and non-financial institutions need to comply with the provisions of the Criminal Justice Ordinance 1995 (the “Ordinance”). This creates the offences of money laundering (assisting another person to retain the benefit of criminal conduct, acquisition, possession or use of property representing proceeds of criminal conduct, concealing or transferring the proceeds of criminal conduct and failing to report knowledge or suspicion of money laundering).

All financial institutions and certain non-financial business needs to abide by the specific provisions in the Ordinance which require identity and source of funds to be sought and documented.

The financial institutions caught by these requirements are :Banks & Building Societies, The Gibraltar Savings Bank, Investment Business and Fiduciary Service Providers, Life Insurance Companies, Insurance Intermediaries, Bureaux de Change and money transmission services. Compliance with the provisions of the Ordinance is facilitated by the Anti-Money Laundering Guidance Notes issued and updated by the Financial Services Commission.

Additionally the following non-financial businesses are also caught by the Ordinance : Auditors, external accountants, tax advisors, estate agents, notaries and other legal professionals, dealers in high value goods and casinos.

Requirements

The legal requirement on all of these businesses is that the identity and source of funds of their clients is known and recorded before entering into any arrangement. If the business finds or suspects that money laundering has or may be about to happen, the requirements impose upon them an obligation to make a report to GFIU.

“Knowing your client” (KYC) cannot be delegated to another person. Gibraltar, unlike most other jurisdictions does not permit the use of introducer certificates whereby the true identity of the beneficial owner is not known to the Gibraltar institution.

The provisions also require the true beneficial owner of funds to be established before entering into a business relationship. This also extends to companies and trusts. If the beneficial ownership cannot be established then the firm cannot enter into the business relationship.

KYC records are required to be maintained and be made available to enforcement/ investigating agencies for a period of up to five years from the end of the business relationship.

Training is also required to be provided for all staff on the detection and prevention of money laundering.

Gibraltar is one of the few jurisdictions worldwide to have required a retrospective review of KYC documentation for all existing clients of financial institutions.

The Financial Services Commission conducts on-site reviews of all regulated entities to ensure that compliance with the requirements of the CJO and Guidance Notes are adhered to.

The Definition of Criminal Conduct

The Ordinance defines criminal conduct as any activity, either committed in Gibraltar or elsewhere which if it had been conducted in Gibraltar would be indictable. This includes tax evasion as the committal of such an offence would normally also include the committal of other indictable offences.


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